Cross-border trade often causes job losses in some sectors, requiring governments to address these disruptions without giving up trade’s benefits. Public discontent with globalization stems from uneven trade gains and neglect of workers displaced by global integration or technology. These issues affect both wealthy nations (e.g., the U.S. and U.K.) and emerging economies like China, India, and Brazil—often seen as trade beneficiaries. In emerging markets, trade’s unequal impacts are less obvious due to their faster recent growth. Economists note that while free trade boosts overall living standards, it creates domestic winners and losers. Those harmed by trade often oppose further liberalization and push for protectionism, threatening broader societal benefits. When trade’s gains are widespread but losses concentrated, disillusioned workers can become a political force reversing liberalization.

Is trade a zero-sum game? Emerging economies’ rapid global integration has heightened income and job loss risks in high-income countries. Post-WWII, most trade was between similar wealthy nations, spurring innovation, lowering costs, and benefiting consumers, with minimal intra-industry income and employment gaps. Since the 1980s, developing countries’ trade liberalization and WTO membership (now 40% of global trade) have shifted trade to high-low income exchanges, driven by comparative advantage—triggering domestic distribution tensions and fears of falling wages. Trade distribution tensions have existed since post-WWII: French farmers opposed the EEC until the Common Agricultural Policy, and U.S. unions opposed NAFTA. Today, China’s scale and rising workforce productivity—paired with stagnant real incomes, tech displacement, and inequality in wealthy nations—have made these tensions more prominent in developed economies. Trade is widely thought to improve developing countries’ household well-being, and poverty reduction (notably in China and India) fuels the zero-sum misconception that developing nations win at developed ones’ expense. However, trade creates winners and losers within all countries. While 25+ years of research shows trade is not the main driver of inequality, its distributional impacts matter. Import competition affects labor markets similarly across economies—e.g., U.S. and Brazilian manufacturing job losses from Chinese imports, which align with economic theory. Trade, alongside changing tastes and technology, creates and eliminates jobs, with this turnover key to a dynamic economy.

Regional Variation

What is more surprising and worrisome is that the effects of international trade on earnings and employment are geographically concentrated and long lasting. The effects of international trade depend on a region’s exposure to import and export shocks. Individuals in regions with high concentrations of export-oriented industries fare better than individuals in regions with lower concentrations of exporters. Conversely, individuals in regions with high concentrations of import-competing industries fare worse than individuals in less exposed regions. This is supported by research on a range of countries, including Brazil, China, India, Mexico, the United States and Vietnam.

Economic theory expects individuals to relocate from adversely affected regions toward better-performing areas over time, causing earnings differences to dissipate. In reality, there is imperfect inter-regional worker mobility. Moving is costly and may entail giving up informal insurance such as the help and support of family and friends. Rigidities in markets for property and productive assets may make it difficult to buy and sell important elements of peoples’ livelihoods and well-being. Research suggests that the reasons for worker immobility are country-specific, depending on the level of development, government policies and social norms. The unequal effects of trade persist partly because of a lack of outmigration from adversely affected regions after large trade shocks. Moreover, the adverse effects of import competition on earnings and employment can amplify with time. Immobility can last up to 20 years after a trade reform is implemented, as the case of Brazil’s 1991 import liberalization suggests. The relative earnings of workers in affected areas deteriorated since capital only slowly depreciates over time, ultimately leading to factory closures.

Because the adverse effects of import competition are long lasting and geographically concentrated, there are potentially significant spillovers to other outcomes such as schooling, crime, health and the availability of locally provided public goods. These combined effects can further increase income disparities across geographic regions and lead to inequality of opportunity for individuals living in affected communities in the longer term. If governments wish to maintain support for freer trade, which is potentially more important in today’s world of global supply chains than it was in the past, they need to help those who are left jobless. Exactly how governments should help those hurt by globalization is context-specific, depending on the country’s level of economic development, the flexibility of its labour market and the structure of its public finances. Providing social safety nets is costly, but protectionist measures to reverse global trade risk greater harm. Disrupting global supply chains and punishing those who benefit from trade will not bring back lost jobs, but it can undo the gains in growing industries. This article was drafted for the University of Pennsylvania’s Perry World House 2018 Global Order Colloquium, which was supported by a grant from Carnegie Corporation of New York. It draws heavily on existing surveys by the author, particularly ‘The Impact of Trade on Inequality in Developing Countries’, in Fostering a Dynamic Global Economy: The Jackson Hole Economic Symposium Proceedings.

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